Aggregate EPS Growth — Index Earnings Cycle

Earnings per share at the index level — specifically next twelve months (NTM) consensus EPS — is the foundational fundamental anchor for index valuation.

The simple price decomposition (Price = P/E × EPS) makes clear that index direction is driven by either multiple expansion/contraction or earnings growth.

When P/E is relatively stable, the index tracks earnings trajectory almost mechanically.

The revision breadth metric — the percentage of index constituents receiving upward analyst revisions versus downward — is the most forward-looking component.

When revision breadth is positive (more upgrades than downgrades), it means the aggregate fundamental backdrop is improving ahead of reported results.

This revision cycle typically leads price action by 1-3 months because price adjusts as revised estimates become consensus. **Example 1:

** 2021 recovery cycle — S&P 500 NTM consensus EPS upgraded 30% through the year as COVID recovery exceeded expectations → index returned +25% with moderate P/E contraction from 2020 highs.

Earnings breadth stayed above 65% upgrades throughout the year. **Example 2:

** 2022 double compression — NTM EPS estimates cut ~10% as margins compressed under rising costs, simultaneous with P/E compression from 26x to 17x.

This dual compression (earnings down, multiple down) created the -25% index year:

Each factor contributed roughly equally.